TMI Blog2016 (1) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... proval of the appellant lest these bring down or cast aspersions on or discredit the appellant. Owing to the fact that LCs represented the appellant with regard to providing education, MOU laid down strict requirements of infrastructure, processes, qualifications of staff, etc. as elaborated in the MOU. Though the MOU states that it is not a franchise arrangement and is a model of public-private partnership for deciding classification of the service rendered thereunder, we have to see the nature, terms and conditions thereof; it is immaterial as to what nomenclature is assigned to it. Indeed, the MOU in question is so clear an example of “franchise” as defined in Section 65 (47) ibid that any further elaboration on this point will be an exercise in over-kill. Valuation of services - Held that:- the entire fee collected by LCs in the name of the appellant cannot be treated as assessable value of franchise service. - the total fee collected by the appellant through LCs, a part was given back to LCs. Obviously, the part of the collection which was given back by the appellant to LCs cannot form part of the assessable value for the purpose of taxability. As per Section 67 ib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. R.K. Singh, Member (Technical) For the Petitioner : Mr. Prabhat Kumar, Adv. For the Respondent : Mr. Govind Dixit, DR ORDER Per Mr. R.K. Singh : Appeal has been filed against Order-in-Original No.106-07/LDH/2013, dated 19.12.2013 in terms of which service tax demand of ₹ 1,44,14,31,243/- for the period October, 2006 to June, 2012 was confirmed along with interest and penalties under Franchise Service [Section 65 (47/48/105 (zze) of the Finance Act, 1994]. 2. Brief facts of the case are as under:- The appellant, Punjab Technical University (PTU), is a university established under the Punjab Technical University Act, 1996. It is a statutory body which runs its own colleges/affiliated colleges and distance education programme through more than 2100 Learning Centres (LCs). It provides courses leading to degree/diploma in engineering, management, architecture, paramedical and various other programmes. The appellant designed its distance education programme and created a 3-tier architecture for running the same (i.e. distance education programme) through LCs (3rd tier) which were to be supervised by Regional Centres (RCs) (2nd tier). The Memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the judgement of CESTAT in the case of Speed and Safe Courier Vs. Commissioner[2008 (13) STT 257 (Tri.-Bang)] but that judgment was overturned by Kerala High Court [2010 (18) STR 550 (Ker)]. (xi) The MOUs entered into by the appellant with LCs can be called joint venture agreement and not franchise agreement. (xii) The entire fee collected by the appellant is taken as taxable service while as per the agreement, the appellant paid certain percentage to LCs/RCs out of the fee collected. The share of appellant normally varied from 28% to 37% of the total fee collected. If at all, only authorisation fee / additional authorisation fee collected by appellant should be treated as value of franchise service which will reduce the demand to ₹ 5,86,003/- after cum-tax benefit, as shown in para 36 of grounds of appeal. (xiii) The extended period in this case is not invokable as there is no suppression of facts or wilful mis-statement and these activities of the appellant were made public even on its website. (xiv) The facts of this case are not similar to the case of DPS Vs. CST [2013 (32) STR 179 (Tri.-Del)] decided by CESTAT. (xv) It cited in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case. (iv) Whether penalty is leviable on the appellant. A careful scrutiny of the MOU entered into between PTU and RCs/LCs is necessary for deciding classification of service. Therefore, it is facilitative to reproduce a typical MOU and definition of franchise given in Section 65 (47) of the Finance Act, 1994, which is done below:- MEMORANDUM OF UNDERSTANDING This MEMORANDUM OF UNDERSTANDING (MOU) is made on 27 day of August 2007 between: PUNJAB TECHNICAL UNIVERSITY , Ladowali Road, Jalandhar, Punjab, India-144001, through its Dean (DEP) hereinafter referred to as PTU , which expression shall include its successors and assigns (part of the first part); AND M/S SYMANTEC INFOWAYS , 3789/1 JAGAT JEET NAGAR, LUDHIANA, PUNJAB, THROUGH ITS ARC M/S VICE, having its office at 2647, HUTSON LINE, NEAR NORTH CAMPUS, DELHI UNIVERSITY, DELHI, DELHI, India, through its CHAIRMAN, RAJAN CHOPRA. Hereinafter referred to as PTU s REGIONAL CENTRE, hereinafter further referred to as RC , which expression shall include its SUCCESSORS and assigns (party of the second part). This MoU is in furtherance to the earlier agreement, du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) of the PTU within its herein allotted zone comprising the STATE OF RAJASTHAN for the IT, and for supervising the working of the LCs located in its said zone and coordinating with those LCs for ensuring that the LCs provide proper and quality education / training to the students of the PTU strictly as per the commands, norms and standards laid down by the PTU for the skill based learning leading to the award of Degrees / Diplomas by the PTU in the concerned courses / streams through the distance education made. AND WHEREAS this arrangement under the present MOU is not a franchising arrangement in any way but that this a model of public-private partnership for providing effective student support services keeping in mind the present structure of PTU. AND WHEREAS by this arrangement under the present MOU, no essential, basic and statutory function of the PTU shall be outsourced to the RC. NOWTHEREFORE in consideration of the aforesaid binding premises, and the mutual covenants and promises made hereinafter, the parties hereto, i.e., the PTU and the RC, agree as follows to create a legally binding mutual relationship: Section 1 : FEES: 1.1 Mode of collection of fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorization issued to the LC by the PTU at the sole discretion of PTU. Each LC may start either IT Mgt. courses OR non-IT courses as per their core-competence. Each LC shall have to provide separate infrastructure for PTU authorized courses. Any LC desirous of running both IT Mgt. and Non IT streams shall have to provide separate infrastructure for these streams. It shall be responsibility of the RC concerned to make these guidelines known to the LC and train them as per rules and ensure strict compliance of the instructions of the University. 2.2 Venue for conducting the courses: The courses mentioned in para No. 2.1 shall be conducted only at the designated location of the LC, as stipulated in the letter of authorization issued to the LC by the PTU. In no case the location of the LC can be shifted to any other place of its own without the prior written permission of the PTU after verifying the suitability of the said venue. RC shall have to ensure that no LC in their region of operation, either sells, transfers, or closes the operation without properly taken care of the interests of the students enrolled with the University. 2.3 Norms for Infrastructure Facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The PTU will lay down all the requisite norms which shall be implemented by the LCs to ensure the imparting of quality education by the LCs to the students of PTU enrolled for the authorized courses. 4.2 OBLIGATIONS OF THE REGIONAL CENTRE (RC) (Party No.2 herein) (1) The RC will coordinate with the PTU on the one hand and the LCs on the other hand in all matters as required by the PTU from time to time. (2) The RC will provide logistic support to the PTU and LCs as per norms of PTU, to carry out the objects and obligations under the MOU. (3) Provide information about each LC to the PTU and assist in its proper monitoring. (4) In case any LC is closed by PTU then it would the liability of the RC to assist the PTU to ensure that students do not suffer their studies are conducted alternatively in PTU s another authorized LC within the zone allotted to RC. Before officially closing the center, all student record files and No Dues must be submitted by RC to the University. (5) RC would be responsible for conducting the marketing / advertisement campaigns strategies in print and electronic media for admissions and brand promotion of the courses of PTU in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement and hoarding to be placed / put up by the RC and LCs under the RC shall be done with the prior written approval of the PTU. Any advertisement and hoarding to be placed; put up by the RC / LCs should not bring down or cast aspersions on or discredit the PTU, and the decision of the PTU ordering the withdrawal of the advertisement or removal of the hoarding shall be final and binding on the RC / LCs. (23) The RC may take part actively with the PTU in image building exercises and must organize at least one public function, seminar, counselling session in their region each semester. (24) The RC agrees to provide expertise for infrastructure, equipments, teaching and training necessary for the course as and when called to do so by the PTU in respect of any LC within the zone allotted to the RC. (25) The RC shall ensure that the learning imparted to the student covers comprehensively, the entire syllabus, as prescribed by the University within the specified time frame and strictly as per norms laid down or to be laid by the PTU. (26) The RC will have to perform any other functions or assist the PTU in the proper functioning of the LCs as and when called to so d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of their performance) shall be in supersession of the existing MOU of the RC with the PTU. 6.2 Duration: The validity of authorization period by way of extension of the existing tenure of RC and by re-allotment of its zone of operation on the terms and conditions as laid down in this MOU under the aforesaid present policy of PTU, shall be as stipulated under this MOU. Section 7 : Validity of authorization period and the re-allotted zone: This authorization as RC (being granted under the present policy of PTU for renewing the existing terms of the existing RCs after due performance appraisal as per ____________ approved by BOG) is presently valid for a term of 2.5 year(s) from the date of signing this MOU, with a provision of extension based on performance after proper evaluation, for the re-allotted zone falling in Zone T. There shall be mid-term appraisal after 1.25 years and further extension or otherwise shall be decided. Section 8 : Withdrawal Clause: Any RC may withdraw from this MOU by giving a prior notice of withdrawal of three months to the PTU, which shall require acceptance by the PTU. Section 9 : Exit clause and provision of Natural Justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk, service mark, trade name or logo or any such symbol, as the case may be, is involved; As evident from the MOU, appellant approved and monitored all LCs. It approved the syllabus, courses and examination process. Students are on the rolls of the appellant and the prospectus and the application form is approved by the appellant. The examination, evaluation, declaration of results and award of degrees are also the obligations of the appellant. The appellant lays down infrastructural requirements to be adhered to by LCs. It also lays down the eligibility criteria for the faculty and staff to be engaged by LCs and the requisite norms to be implemented by LCs to ensure impart of quality education by LCs to the students enrolled by the appellant in authorised courses. Correspondingly, obligations of LCs, as mentioned in MOU reproduced above, clearly show that they have to abide by the terms and conditions specified in the MOU. The agreement clearly provides that LCs are duly authorised by the appellant to engage in providing training/education by offering appellant s various approved distance education courses of IT and non-IT streams and other related fields, strictly as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenable as the definition of franchise given in Section 65(47) ibid quoted earlier clearly states that these may not be involved. In the case of Global Transgene Ltd. Vs. CCEST, Aurangabad [2013 (32) STR 179 (Tri.-Del.)], CESTAT has held that admittedly in a franchisee transaction, the franchisee loses his individual identity and represent the identity of the franchisor to the outside world, as in the case of McDonald the customers are not concerned with who owns the McDonald s restaurant (franchisee). The customers identify it with McDonald (the franchisor) . In the present case also, a student is hardly much concerned as to which LC he joins because each LC provides education as per the norms and requirements laid down by the appellant and he gets a degree of and from the appellant. Ld. advocate referred to the judgement of Kerala High Court in the cases of Speed and Safe Courier Service Vs. Commissioner (supra) and Franch Express Network (supra). In the case of Speed and Safe Couriers Service (supra), the Hon'ble Kerala High Court found that double assessment of charges was made and held that there was no statutory provision to tax the same service charges twic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the taxable service will be the gross amount charged for the service and the gross amount charged by the appellant for the service rendered has to be equal to the amount collected by the appellant from LCs minus the amount paid by it to LCs. It is pertinent to mention that the amount paid by the appellant to RCs would not be excludible from the assessable value, because the RCs were created by the appellant to ensure that LCs acted as per the MOU, the franchise service was properly monitored and suitably promoted and for certain other purposes as mentioned in MOU. Thus, the amount paid to RCs by the appellant was an expense at the hands of the appellant in connection of provision of franchise service. For the sake of elucidation, for example, the appellant could as well have employed its own persons for doing what RCs did in which case the expenses incurred in doing so would not be deductible from the assessable value. Thus, the amount paid by the appellant to RCs is not excludible from the assessable value. 6. The appellant has contended that the extended period in this case is not invocable as there was no suppression or wilful mis-statement. It stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court held that extended period invokable only when there is positive act other than mere inaction or failure on the part of manufacturer and there must be conscious or deliberate withholding of information by manufacturer . While there are bland statements made in the Show Cause Notice alleging wilful mis-statement/suppression of facts, there is no evidence adduced in support thereof. Non-payment of service tax/non-obtaining of registration by themselves can hardly ever sustain charge of wilful mis-statement or suppression of facts in-as-much-as in case of a bona fide belief regarding non-taxability, no assessee would file returns or obtain registration. In case of CCE Vs. Chemphar Drugs Liniments [2002-TIOL-266-SC-CX], the Supreme Court held that something positive other than mere inaction or failure on the assessee s part or conscious withholding of information when assessee knew otherwise is required for invoking extended period . Thus, we are of the view that the allegation of suppression of facts cannot be sustained in the given circumstances. Consequently, penalty under Section 78 ibid is not imposable. 7. In the light of the analysis above, we allow th ..... 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